Wednesday, July 22, 2009

Ron Paul: Health Care is a Good, Not a Right

It is incredible to see how much of the health care reform debate is centered around whether health care is a right or a good. It seems that if we understood this simple concept, the role of government in health care would be understood and the reform debates would be over.

I believe that this may be the first American generation even capable of sustaining this good vs. right debate. If our ancestors were asked to name American rights they would have mentioned the right to worship, to right to free speech, and the right to bear arms. If asked, the current generation might mention some of these, but would also include the right to education, the right to Medicare, Medicaid, or Social Security or the right to government disaster aid.

As we have discussed in length in the past (see Health Care: a Right or a Commodity), the Declaration of Independence sheds light on what true rights are: “Men… are endowed by their Creator with certain unalienable Rights.” True rights are endowed by the creator- not distributed or rationed by governments. They are also unalienable or inseparable from the human existence. Neither health care, education, nor any other social program fits this description. They are not God-given, nor are they unalienable.

Ron Paul pegs many of the central issues of the right vs. goods debate in his weekly message. We thank our readers for sending this on to us. You can read the text of his address here.

Rusty Scalpel

Saturday, July 18, 2009

Where Can Virtue be Found?

A while back I found myself in a classroom listening to a self proclaimed “independent” spokesman. He represented the political arm of a religious-affiliated hospital located in an underserved area of a major city. The man was giving a lecture on how he thought medical care should be delivered. He proceeded to present his liberal agenda starting off by laying a philosophical framework which he claimed to be centered, ironically, on the very principle it lacked – virtue.

The man was very well versed in speech, even using ancient philosophers as examples. He stated the framers of the constitution were absolutely wrong because they did not include healthcare as a right (see Rusty Scalpel article - definition of a right - Healthcare is not a right) and that the only way society could be virtuous is if it provided for the healthcare of everyone. He then proceeded to say that one person in society cannot provide all the goods and services for himself (i.e. the farmer has a social responsibility to the doctor and vice-versa.) In the end he claimed the only way to properly take care of the healthcare needs of the society is to have a government mandate.

A government mandate in its simplest form is force. In “The Adventures of Jonathan Gullible” Ken Schoolland pointed out that a government mandate or law is like an "Invisible Gun." If an individual resists complying with the government mandate the ultimate punishment is imprisonment or death. It is invisible because few individuals resist and realize the final punishment.

During the lecture I was reminded of an economic concept which is poorly understood - spontaneous order. (See video below) The lecturer believed that the only way people will act “virtuously” is through government coercion. However reality seems to counter this notion. Every day individuals come together, voluntarily, and make decisions for themselves that in turn benefit society. Adam Smith, the father of economics, referred to this phenomenon as the “Invisible Hand” that would lift society to an optimal state.

It should be asked - Where is virtue derived from? Where can virtue be found? To start, it must be understood that virtue can only exist when there is free choice. Thus an individual’s actions can only be virtuous when preformed voluntarily. Forcing one man to “give” to another is not only immoral- it frustrates the very principle of virtue.

It is very popular to blame the free-market capitalism for the state of healthcare. However realizing that healthcare is the most regulated industry, we can see that free-market capitalism is not failing but only the reverse - the long history government interventionalism is failing. To conclude - virtue in society can only exist by promoting, not limiting free choice, thus encouraging the morally superior “Invisible Hand” instead of frustrating virtue by the immoral and all too often impractical consequences of the “Invisible Gun.”


Saturday, July 4, 2009

Price Controls, Medical Shortage, and Apples

In the face of rising health care prices, price control may appear a reasonable means to keep health care accessible to the masses. If health care is becoming too expensive, why not lock in prices to a rate that will insure that everyone gets the care that they need? To answer the question, let's apply it to a field that appears much more simple and economically fundamental. Let's apply it to apple selling.

Suppose that a late frost killed the blossoms of the apple trees of North America. By late summer, the shortage really starts to show as prices triple what they were in previous years. We understand why prices are high because we remember the supply and demand curves taught us in high school economics courses. The curves really work in the real world. Apple supply has fallen and demand has remained the same. There is a relative shortage of apples and price goes up.

Let's suppose the Secretary of Agriculture declares an apple state of emergency and appeals to Congress for help. The poor who depend on apples for survival are going hungry. The rich who can afford high prices are hording apples for themselves. Congress must recognize that a disaster is at hand and take stringent measures. Congress responds to the national crisis by establishing price controls in the apple industry. By law, apples can not sell above a given price. Problem solved and constituents appeased.

We, with our rudimentary understanding of supply and demand, can anticipate what effect the new law will have on the apple shortage. The past high price of apples had ensured that they stayed stocked in supermarkets. They were available so that those who really needed them got them. As Congress stomps down the price, consumers rush to stores to buy apples. The precious few apples are squandered on ordinary uses. The produce section of grocery stores are emptied and there are no more apples to replace those sold. The prices that kept apples available are now gone and we have a real shortage on our hands.

Empty shelves are evidence enough that demand for apples is greater than available supply. In a free economy, this would push up the price of apples and encourage suppliers to produce more of them. But in our economy, Congress has set the price of apples. It cannot rise. Suppliers had very few to sell in the first place and selling at an artificially low price, they cannot make up their losses and many of them go out of business.

What's more, Congress did not realize that the international trading partners of the United States were shipping apples to our apple-starved country even as the price control was being passed. They had seen the high prices and realized that they could make a profit by selling their apples here. Had those apples arrived, supply would have increased to meet demand and the prices of apples would have fallen. However, when news got out that had Congress passed the price control bill, those apple-laden ships turned around and returned to their own countries without selling a single apple. With price controls in place, it was no longer worth it to sell their apples here.

After the first year of price controls, many apple growers are unable to stay in the market. They leave the business and further decreased the available supply. Those still in the market still face the price control. They are unable to invest in their apple crop as they would other years because they know they will have to sell low. They try to cut production costs to make up for their low selling price. They skimp on fertilizers and pesticides. As a result, it is a crop of puny, wormy apples that hit stores that summer.

It is plain to see that without price controls, the apple market would have soon recovered. The high prices would have rationed the use of apples to the most important uses. The prices would have helped apple growers survive a hard year to be able to grow in the next. The high prices would have ensured that quality apples continue to be grown (with a variety of lower-quality apples available at lower prices). What's more, the high prices would have attracted additional suppliers who would have ended the shortage of supply and brought down the price.

The lessons learned from price controls in the apple market apply to all free markets, even the supposedly impossible-to-understand medical market. As with all other goods and services, the price of health care is determined by the balance of supply and demand. If supply is high compared to demand, prices drop to increase demand for the product. If supply is is low relative to demand, high prices ensue which dictate a natural rationing of the the product. It is reserved for the most urgent purposes and a true shortage never occurs.

Just as in the apple business, the imposition of price controls in the medical market will cause an increase in demand. Artificial low prices will ensure that available medical care is "used up" instead of being reserved for the most important purposes. Here a real shortage will occur (think of the stories of 7 month waits to use an MRI in Canada).

Just like in the apple business, the imposition of price controls will decrease available supply. It will make the delivery of health care services financially unattractive, if not impossible for many providers. They will drop out of business and the shortage will worsen. Remaining available services will drop in quality. What's more, medical providers who would otherwise be willing to come to the rescue for financial motives will no longer have any incentive to do so. The care they would provide and the resulting price relief will never come.

It is interesting to note that government programs that provide "free care" to patients have many of the same effects as price controls. They lead to unbridled consumption of available health care resources by enrolled patients. Reimbursement for these services is a price control- reimbursement rates are set by Congress. These artificially low prices discourage medical care suppliers from providing services and further aggravate the medical "shortage." I would be fascinated to see a study demonstrating how much of the "high" price of health care for privately-paying citizens can be directly attributed to federal aid programs.

We live in a time of rising prices and decreased medical availability. Our legislators may be tempted to consider price-control as a means to improve access to medical care. But we know that price controls will cause true shortages. A free economy regulates itself, increasing supply to meet demand to ensure access to care by all paying customers. The solution to high prices is high prices.

Rusty Scalpel